Beginners'Guide For Business

Financial Analysis
by reading income stat,balance sheet & calculating financial ratios

Presented by:Lexington Corporate Advisors

Need For Financial Analysis

It helps the investors to understand the position,standing and

profitability of the business firm in the market
It helps the business managers to run the organization more
efficiently and profitably

Financial Statements

Balance sheet:shows what a company owns and what it owes during

a particular time
Income statement:shows total money a company made and spent
over a period of time
Cashflow statement:shows the money exchanged by the company to
the outside world over a period of time

Balance Sheet

The formula: Assets = Share Holder's Equity + Liabilities summarizes balance sheet
Asset:what co. owns - ex:cash,bank deposits,inventory,plant &
machinery,equipments,bills receivable et.al
Liabilities:what co. owes - ex:loan,overdraft,creditors,bills
payable,salary outstanding et.al
Shareholder equity:Also called capital or net worth.Its the
money that belongs to the shareholder or the owners of the co.
It is the money left after assets selloff & liabilities payoff

Income Statement

It shows how much revenue a company earned during a specific

time period(a year in general). It lists all the expenses and
pay off on one side and revenues and gains on the other balance
are summed up and the differentiating factor is profit or loss

Cash Flow Statements

They report a companys inflows and outflows of cash. Bottom

line of the cash flow statement shows the net increase or
decrease in cash for the period.
It calculates cash generated or utilized from operating
activities,investment activities and financing activities to
arrive at the balance net increase or decrease in cash

Read MD&A Reports

Managements Discussion and Analysis provide investors with its

view of the financial performance and condition of the company
It reveals investors what the financial statements show and do
not show,as well as important trends and risks that had shaped
the past or likely to shape future
It is intended to help investors to see the company through the
eyes of management
It is also intended to provide context for the financial
statements and information about the companys earnings and cash
flows

Reading Footnotes

Going through cos. accounting policies and practices provide

significant information about co's workings and undertakings
Read info about the federal,local and state taxes payable
Get the information about stock options granted to companies'
officers and employees

Financial Ratio Analysis

Ratio analysis help to analyze some of the key factors and to

give insight of the companies' internal state of affairs
1. Debt-to-equity ratio compares a companys total debt to
shareholders equity
Debt-to-Equity Ratio = Total Liabilities / Shareholders Equity
2. Inventory turnover ratio compares a companys cost of sales
on its income statement with its average inventory balance for
the period
Inventory Turnover Ratio = Cost of Sales / Average Inventory for
the Period
3. Operating margin compares a companys operating income to net
revenues
Operating Margin = Income from Operations / Net Revenues

contd....

Financial Ratio Analysis

4. P/E ratio compares a companys common stock price with its
earnings per share
P/E Ratio = Price per share / Earnings per share
5. Working capital is the money leftover if a company paid its
current liabilities from current assets
Working Capital = Current Assets Current Liabilities

-: Contact us :Lexington Corporate Advisors

The Maltings
East Tyndall Street
Cardiff
CF24 5EZ
029 2009 5500
agurdon@lxnca.com
http://www.lxnca.com